The Continuous Securities OfferingHandbook Financing for the Digital Era

Summary

A Continuous Securities Offering (CSO) is a new investment vehicle, updated for the digital era. The CSO enables companies with growth potential to raise funding by selling a claim on a reserve, funded primarily by a fixed portion of revenues. The CSO offers several advantages over traditional financing:

Fairmint offers a turnkey solution that streamlines companies’ ability to launch and manage their own CSO. This document explains the market shortcomings that the CSO solves and provides an overview of how a CSO works, including the lifecycle and parameters for trading.

FoundersGet financing

while retaining their ownership

stake

StakeholdersGet better

liquidityGet a way to

participate in the company’s financial

success

Investors

02

Сontents

Introduction05

Solving the Equity Inequity07

Fairmint’s CSO Web Application19

How the CSO Works11

Simplified Reporting

Aligning the Company and Investors

Compatibility with Equity Investments

The CSO Lifecycle16

Initialization Stage

Running Stage

Closing Stage

Pricing and Trading Tokens21

Minting Tokens

Buying Tokens

Selling Tokens

Redeeming Tokens

Allocating Liquidity

Illustrative CSO Examples25

Investors's perspective

Founders's perspective

03

Legal Disclaimer

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GENERAL INFORMATIONAL PURPOSES ONLY AND IS NOT A FORMAL OFFER TO SELL OR A SOLICITATION OF AN

OFFER TO BUY ANY TOKENS, SECURITIES, OPTIONS, FUTURES, OR OTHER DERIVATIVES RELATED TO SECURITIES

IN ANY JURISDICTION, AND ITS CONTENT IS NOT PRESCRIBED BY SECURITIES LAWS. INFORMATION CONTAINED

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CONTRACT, TORT, TRUST OR OTHERWISE, TO YOU OR ANY PERSON RESULTING FROM THE USE OF THE

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THE EXPECTATIONS OF, OR STATEMENTS MADE BY, THIRD PARTIES IN RESPECT OF THE MATTERS DISCUSSED IN

THIS WHITE PAPER.

THIS WHITE PAPER CONTAINS FORWARD LOOKING STATEMENTS, INCLUDING AMONG OTHER THINGS,

STATEMENTS CONCERNING THE DISTRIBUTION OF HYPOTHETICAL TOKENS, THE THEORETICAL PERFORMANCE

OF SECURITIES IN CONNECTION WITH THE COMPANY’S PROPOSED SECURITIES OFFERING MODEL, AND OTHER

STATEMENTS IDENTIFIED BY WORDS SUCH AS “COULD,” “EXPECTS,” “INTENDS,” “MAY,” “PLANS,” “POTENTIAL,”

“SHOULD,” “WILL,” “WOULD,” OR SIMILAR EXPRESSIONS AND THE NEGATIVES OF THOSE TERMS. THEY MAY ALSO

INCLUDE HYPOTHETICAL SCENARIOS ILLUSTRATING CONCEPTS DISCUSSED HEREIN. IN ANY EVENT,

FORWARD-LOOKING STATEMENTS ARE NOT PROMISES OR GUARANTEES OF FUTURE PERFORMANCE, AND ARE

SUBJECT TO A VARIETY OF RISKS AND UNCERTAINTIES, MANY OF WHICH ARE BEYOND OUR CONTROL. ACTUAL

RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A

RESULT OF VARIOUS RISKS AND UNCERTAINTIES, WHICH INCLUDE, WITHOUT LIMITATION, MARKET RISKS AND

UNCERTAINTIES AND THE SATISFACTION OF LOSING CONDITIONS FOR A DISTRIBUTION OF TOKENS.

FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE HEREOF, AND, EXCEPT AS REQUIRED BY LAW,

FAIRMINT UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE THESE FORWARD-LOOKING STATEMENTS.

04

Introduction

A Continuous Securities Offering (CSO) is a new, updated way for companies to raise

funding. The CSO democratizes investing and modernizes it for the digital era. It

expands the pool of potential investors, allowing all stakeholders — not just a small

group of privileged, wealthy investors — to share in the value created by a company’s

success.

Consider this: although AirBnB’s 650,000 hosts are critical to its success, most of the

$35 billion in value created by the company will flow to a small number of investors.

The CSO was designed to disrupt this model and balance the playing field.

Fairmint provides a turnkey cloud-based web application that enables companies to

raise funding through a CSO with confidence and minimal effort. Using Fairmint

technology, a company can easily run a CSO on its own website or app, raising capital

and letting investors trade in securities backed by a portion of the company’s

revenues. Fairmint’s goal is to disrupt the investment banking industry by providing

companies with financing solutions that are fairer and easier to manage.

* These diagrams are for illustrative purpose only. They are not based on real data.

Company Value Captured Company Value CapturedWith CSOWithout CSO

Founders

Investors

Employees

Contractors

SuppliersPartners

CustomersContributors

Users

Founders

Investors

Employees

05

To ensure that the CSO idea and the Fairmint technology are robust, we have

conducted extensive research with leading firms. Our legal work was performed by

top-tier technology law firms specializing in securities law serving premium startups

and emerging growth companies. To develop a sound and transparent tax and

accounting framework, we have worked with a “Big Four” auditing firm. We have

subjected the CSO model to comprehensive economic proofs, conducted by

BlockScience, an engineering, R&D, and analytics firm specializing in complex systems.

Lastly, the technology behind our solutions has been reviewed and audited extensively

by Consensys Diligence, one of the most reputable auditing firms in our specialized

field.

This document provides an overview of how CSOs work and how they improve on the

current system of financing.

We developed the CSO model in response to widespread recognition that current

investing options are inadequate. To craft a better solution, we interviewed hundreds

of people at growth-oriented companies, including founders, investors, employees and

marketplace suppliers (such as AirBnB hosts and Uber drivers). Our model gives each

stakeholder what they want most:

Founders get financing without sacrificing ownership of the company. They also get a vehicle to align the company’s wellbeing with their stakeholders and customers.

Investors get liquidity, so that they can buy and sell whenever they want within the boundaries set by securities law in the applicable jurisdictions.

Stakeholders — such as employees and platform users — get access to a security that lets them participate financially in the company’s growth.

06

Solving the Equity Inequity

It’s not groundbreaking news that technologies developed over the past quarter

century have dramatically reshaped how businesses operate and how they interact with

customers. These technologies — ranging from the internet and smartphone apps to

cloud computing and blockchain — have enabled new business models, such as

peer-to-peer lending (Lending Club and Prosper) and sharing-economy platforms

(AirBnB and Lyft).

As these models have evolved, high profile investors have lamented the growing

inadequacies of the investment vehicles that have underpinned the economy since the

industrial revolution. While these vehicles have undoubtedly helped drive centuries of

growth and innovation, they tend to serve the interests of a privileged few — wealthy

shareholders over stakeholders, for instance.

To quote Salesforce founder Marc Benioff: “When we finally start focusing on

stakeholder value as well as shareholder value, our companies will be more successful,

our communities will be more equal, our societies will be more just and our planet will

be healthier… It’s time for a new capitalism — a more fair, equal and sustainable

capitalism that actually works for everyone and where businesses, including tech

companies, don’t just take from society but truly give back and have a positive impact.

What might a new capitalism look like? First, business leaders need to embrace a

broader vision of their responsibilities by looking beyond shareholder return and also

measuring their stakeholder return.”

What might a new capitalism look like? First, business leaders need to embrace a broader vision of their responsibilities by looking beyond shareholder return and also measuring their stakeholder return.

07

He has a point. Uber ’s IPO, for instance, earned billions for a limited number of

people, including investors such as Google, SoftBank, along with Uber ’s co-founders

and executives. The ride-hailing service’s drivers — the stakeholders Uber depends

upon — were left out altogether. The same holds true for Lyft, Lending Club, and many

others.

The fact is, these companies may have wanted to reward or incentivize their

stakeholders by offering a stake in their future success. But there currently exists no

vehicle for them to do so. Pre-IPO companies frequently sell shares to their employees

as a retention perk, but securities regulations prevent them from offering shares to

many outside stakeholders. By the time a company launches its initial public stock

offerings (IPO), it’s too late for these early stakeholders — who frequently believed in

the company enough to alter their careers and make investments (cars, apartments) —

to cash in on the substantial value that they helped create in the high growth stages of

development.

Moreover, even IPOs are increasingly out of the reach of stakeholders. Companies are

waiting longer to go public, and many more are choosing to remain private, largely due

to the growing administrative and regulatory burden. There are about half as many

public companies today (3,671) as in 1996 (7,322). If a company doesn’t go public, sell

itself or distribute dividends, its financial value remains perpetually in the hands of a

few. Stakeholders never get their fair share.

In the current environment, even traditional business angels (BA) are being sidelined

from startup opportunities. These days, BAs need to be highly connected insiders,

dedicating themselves full-time to investing in order to make a profit. Once a company

starts taking off, the BA's money is no longer welcome; their only opportunity to invest

is to hope the company eventually goes public. A CSO enables the BA to invest in

promising private companies, from the earliest stages onward.

08

These limitations posed by traditional funding vehicles are unfortunate not only for

the stakeholders, but also for founders, who are forced to fight for financing among a

relatively small group of individuals who control large quantities of wealth. Because

the pool of early-stage investors is small, founders must make significant

concessions — such as offering control and large ownership stakes — to access

financing. These early-stage financiers tend to have narrow interests (e.g. maximizing

return), so many companies remain unfunded despite serving worthwhile needs or

even being potentially profitable.

Fairmint addresses these inequities by offering tools enabling any investor — not just

the privileged few — to purchase a stake from the earliest stages of a company’s

development through the IPO. Instead of preventing investors from getting a seat at a

capitalization table (the “cap table”) limited by ownership stakes, we have created a

new table, a “fair table” that allows a broader group of stakeholders the opportunity

to get exposure to the company’s financial success.

When you can invest as a business angel With CSO

09

* These graphs are for illustrative purpose only. They are not based on real data.

When you can invest as a business angel Without CSO

The CSO provides an investment vehicle that is transparent and defined by clear rules,

a vehicle that doesn’t require the company to pay excessive professional-service fees

or take on the kind of administrative burden that typically accompanies fundraising.

Moreover, by decoupling ownership from financing, the CSO leaves governance in the

hands of founders and their companies. This allows them to focus on the long term

success of their companies.

By decoupling ownership from financing,the CSO leaves governance in the hands of founders and their companies

10

How the CSO Works

The CSO essentially creates a market where investors can get exposure to a company’s

future revenue performance. To launch a typical CSO, a company commits to allocating

part of its realized revenues1 for a period of time to fund a reserve (held in escrow).

For instance, the company may decide to commit 10% of its annual revenues to the

reserve, distributed quarterly, for 5 years. It then embed’s Fairmint’s CSO web

application on its website and begins issuing securities — called tokens — enabling

investors to obtain a claim on the reserve.

The reserve's primary purpose is to serve as a last-resort buyer for the tokens. The

reserve continuously offers a price, calculated by an algorithm, at which investors can

redeem tokens. As the reserve grows, investors participate in the company’s success.

The company can increase the portion of its revenues that it commits to the reserve —

for instance, to attract additional capital from investors — but it can never decrease

that portion. Investors and other stakeholders (such as potential service providers) can

acquire CSO tokens either by purchasing them or through compliant incentive

programs the company establishes.

In contrast to equity investing, in a CSO, investors buy a share of the value held in a

reserve, funded mainly by company revenues, whereas in the equity markets investors

have a claim on ownership of the company, the value of which is largely driven by

current and future profits. Another key difference is that investors2 can “mint” (create)

or “redeem” (cancel) tokens throughout the life of the CSO, transacting directly with

the reserve. This enables tokens to be purchased even when there are no sellers and

sold even when there are no buyers. (For more information, see the Pricing and

Trading Tokens section, below.)

1 Meaning revenues for which the organization has received a payment.

2 In some jurisdictions, such as the US, only investors who pass a wealth or earnings threshold are authorized to mint new tokens.

CSO essentially creates a market where investors can get exposure to a company’s future revenue performance

11

If investors believe that the company’s revenues (and therefore the reserve) will grow,

they may be likely to buy tokens at a price that is a multiple of the value of the current

redemption price. This is roughly analogous to traditional equity markets, in which

investors buy shares at a multiple to a company’s expected future earnings (known as

the price-earnings ratio).

CSO tokens offer another key advantage over traditional equity shares: because they

represent a claim on the reserve, there is a theoretical floor beneath the token’s value,

established by the balance in the reserve fund. So if a company goes bankrupt,

investors can still expect to receive some compensation for their tokens, based on the

balance in the reserve. However, the level of compensation will depend on the timing

of the redemption relative to other investors: redeeming tokens removes them from

circulation, and the redemption price decreases as the number of tokens outstanding

decreases, so investors who sell first will do so at a higher price. Amid significant

selling pressure, investors may see a significant reduction in the value of their tokens.

In this sense, the reserve does not represent a remedy that will make investors whole

in an extreme downside scenario, but we believe it will still result in investors receiving

more protection than they otherwise would in a traditional equity market, particularly if

they are retail investors who lack the size and influence of institutional investors who

can often secure more favorable protections in these downside scenarios. (See

Pricing and Trading Tokens for details.)

12

* This graph are for illustrative purpose only. They are not based on real data.

Illustrative CSO Price Chart

3 (via “decentralized automated market makers” as explained in the How Tokens are Priced and Traded section of this document)

Because of the way a CSO is structured, the company’s reporting burden is

dramatically simplified. The CSO empowers founders to raise capital and investors to

enjoy liquidity3 without the expensive and time-consuming process associated with

launching an IPO or engaging in traditional forms of private fundraising.

There’s no need for the company to hire investment bankers, develop a prospectus that

few investors will review, or in many jurisdictions, publicly file with regulatory

agencies, although we believe that, as laws evolve with respect to decentralized

technology, the CSO model may ultimately be attractive to certain public companies. It

is, therefore, appropriate for a wide array of companies, ranging from Silicon Valley

companies suitable for venture capital to dynamic small or medium-size businesses.

This would include many promising ventures that are not a good fit for traditional

funding. As discussed further below, offering a CSO is compatible with venture capital,

an initial public offering (IPO) or other more traditional sources of capital.

Embedded in the CSO model are various investor protections. For instance, the

company must follow best practices to account for its revenues — although in the case

of companies that use digital platforms (such as Stripe), revenues can be reported in

real time, simplifying the process. As a securities offering, investors should also enjoy

the protections of their jurisdictions securities laws, including fraud and

anti-manipulation protections. Additionally, because the company raises money over

time rather than in a one-off manner, the incentive is to continue executing well to

cultivate the trust of investors. Finally, investors benefit from downside protection

thanks to the reserve, which acts as a buyer of last resort.

Several features of the CSO are designed to align the investor ’s interests with the

company’s. One is the pricing model. The model contemplates the token price rising

with the number of tokens outstanding. This means that investor enthusiasm helps the

company raise more capital, given that the company receives capital for each newly

minted token. This capital, in turn, helps investors by enabling the company to invest

and grow, creating a virtuous circle.

Aligning the Company and Investors

Simplified Reporting

13

Likewise, the CSO enables the company to dedicate a certain percentage of the

proceeds from newly minted tokens — say 10% — to the reserve fund. This “investor

contribution” becomes the property of the token holders, alongside the revenues

committed by the company. As such, a high level of buying can marginally increase the

reserve value, helping provide price stability independent of the company’s revenue

contribution.

It should be noted that some companies — particularly large ones with substantial

profits — may choose not to commit any portion of the proceeds from newly minted

tokens to the reserve (in other words, to set the investor contribution to zero). In other

instances, applicable law may prohibit such arrangements. Founders may determine

that investors don’t need this incentive, or that both the company and its investors

would be better off if the company were able to use 100% of the purchase proceeds to

finance growth.

The remaining proceeds from newly minted tokens goes into the company’s treasury.

This money is used as financing, much the way a venture capital investment finances

growth.

Tokens finance the company in exchange for a claim on a reserve funded mainly by company revenues

The company uses the financing to invest and grow

Growth boosts the revenues committed to the CSO reserve

The cash in the reserve increases the token’s floor (redemption) price

The rising floor price reduces the risk and increases the token’s worth

Rising revenues and reduced risk should support increased investor confidence, theoretically providing for price

stability in the company’s security until the company exits the CSO and buys back tokens.

14

The CSO Virtuous Circle

The company is therefore leveraging its future revenues, rather than selling an

ownership stake. It is obtaining financing from the new tokens that investors mint, and

in return it is granting the investors a claim on the value comminted to the reserve

during the life of the CSO.

Note that while the company commits to a minimum time period for the CSO, it is

always free to extend the duration of the CSO, for a fixed period. In doing so, it would

continue funding the reserve with the same portion of its revenues, further expanding

the potential returns for investors.

It may also be in the interest of the company (and its investors) to raise funding

through other sources, including venture capital, an IPO or other types of equity

investment. Alternatively, a company may have already received funding from such

equity sources before considering a CSO.

The good news is that such equity investments are compatible with CSOs and both

forms of funding could occur in parallel. Because the CSO investor owns a claim on the

reserve rather than an ownership stake in the company, the startup founders and

equity investors retain control of the company. This means a company can issue a CSO

even if it already has equity investors, without diluting their stake in the company,

provided its board and stockholders consent. A public company may benefit from a

CSO as a more flexible way to raise funds and incentivize stakeholders. Further, a

company is also free to raise funding through other channels after it launches its CSO.

Of course, each company’s management and stockholders will decide whether a CSO is

beneficial for the company. We believe that, just as in the case where stockholders

approve a board’s decision to take non-dilutive financing (such as venture debt),

stockholders may also see a benefit to taking non-dilutive financing in the form of a

CSO. In addition, other than limitations imposed by law, nothing precludes

stockholders from also participating in a CSO or a company allocating tokens from a

CSO to its stockholders, provided this is properly disclosed to all active participants.

15

Compatibility with Equity Investments

The CSO Lifecycle

The CSO has three stages to its lifecycle: initialization, running and closing.

The initialization stage features important protections for both the company and

prospective investors. In the initialization stage, investors can purchase tokens at the

same average price until the minimum funding threshold is reached. There is no time

limitation to the initialization stage. Until the minimum funding threshold is reached,

the company has the right to cancel the CSO at any time. If the company decides to

cancel the CSO, investors recover their entire investment. Similarly, investors have the

right to obtain a full refund of their investment at any time during initialization. Once

the threshold is reached, the CSO automatically moves into the running stage.

These provisions protect both founders and investors. They ensure that investors don’t

get stuck investing in a company that few other investors believe in. Further, they

ensure that the company does not end up with too little investment interest, thereby

raising insufficient funding or potentially selling their CSO reserve at a discount.

The minimum funding threshold establishes a floor above which the company is

comfortable moving ahead with its CSO. A company with $10 million in revenues that

commits 10% to its CSO reserve, for instance, may choose a minimum funding

threshold of $1 million to enable it to gauge investor interest in the CSO.

Initialization Stage:

16

The CSO enters the running stage automatically once the minimum funding threshold is

reached. In the running stage, investors can mint and redeem tokens until the company

enters the closing stage. The running stage lasts at least until the minimum duration

has been reached, although the company always has the option to continue the CSO.

The company must continue funding the reserve as long as the CSO is in the running

stage. It cannot reduce the duration or the portion of revenues it commits to the

reserve.

In the closing stage, the company is responsible for redeeming all outstanding tokens

at the price paid for the final token minted. It uses the cash in the reserve to do this,

but it is likely that it will need to add additional funds to the reserve in order to fully

redeem all tokens held by investors.

Therefore, to enter the closing stage, the company must first pay an exit fee to the

reserve, equal to the final CSO token minting price multiplied by the number of

securities in circulation, minus the balance in the reserve.

Once the exit fee has been paid to the reserve, investors are free to redeem their

tokens and the company no longer needs to commit revenues to the reserve.

Investors may speculate on when the company will close its CSO. In general they are

likely to assume that the CSO will be closed after the minimum duration has expired.

When the CSO offering’s minimum duration arrives, the company has two options:

Running Stage

Closing Stage

or

17

If so, the incentive to invest diminishes as the deadline approaches, given that the

company would have fewer reserve contributions remaining.

Companies are unlikely to telegraph the closure in advance, to avoid creating a

situation where frontrunning or other manipulation may occur. Because the company is

never required to close the CSO, if the conditions are not ideal — if the exit fee is too

big for instance — then the company can simply continue its CSO indefinitely. In this

case, it's in the company's interest to promptly extend the CSO's minimum duration,

revitalizing the incentive to invest.

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Fairmint’s CSO Web Application

A company wishing to initiate a CSO can do so by purchasing a license for Fairmint’s

CSO web application and installing it on the company’s cloud4. The application is a

white-labelled, turnkey solution that enables the company to launch and manage a CSO

with a minimal administrative burden5.

Once the parameters are settled and the technology is set up, the company embeds an

“invest now” link on its website and launches its CSO. The process is automated, so

there is minimal administration, but it is important to stress that the company manages

its own CSO (using Fairmint’s technology) on its own cloud. While Fairmint may explore

other models in the future, Fairmint does not presently provide any broker-dealer

services and is solely a technology provider at this time6.

4 In a previous research paper, we described how a continuous organization might operate; organization idea is open-source, available to anyone.

5 What is hosted on the company’s cloud is the user interface to the digital contracts underlying the CSO. Because the digital contracts control the CSO, the company can never access the reserve funds or confiscate tokens from token holders. Fairmint has the ability to re-spawn the interface if needed.

6 Within limits stipulated by the CSO agreement and by the law in the jurisdiction where the issuer is

19

Although the company is legally and financially responsible for the CSO, Fairmint’s

application enables the company to set parameters to comply with relevant legal and

contractual provisions. It can also integrate with other service providers’ technology

to help the issuer enforce various potential provisions, such as lockup periods,

investor credential requirements and permissible trading windows for insiders. The

jurisdiction where the issuer is headquartered and where its investors are located

will determine which rules should be enforced when issuing a CSO. Although the

financial product issued via a CSO will often be deemed a security under US securities

law, it may be considered a different kind of asset in other global jurisdictions. We

emphasize that Fairmint offers no legal advice; issuers should seek their own legal

advice when launching a CSO.

The jurisdiction where the issuer is headquartered and where its investors are located will determine which rules should be enforced when issuing a CSO.

20

To review, in a CSO a company commits to setting aside a fixed percentage of its

revenues to fund a reserve. Investors capitalize on the growth of this reserve by

trading or holding tokens, which provide a claim on the reserve. This section offers an

overview on how these transactions work.

Depending on the investor ’s and the company’s jurisdiction(s), there may be

restrictions on transactions in accordance with applicable laws. This document

provides an overview, based on an ideal scenario, assuming a jurisdiction that allows

for full execution of the CSO and Fairmint’s technology7.

Buying and selling occur using Uniswap, an external “decentralized automated market

maker.” Uniswap’s protocol enables the pooling of liquidity for a specific digital asset

according to a deterministic pricing algorithm stemming from the liquidity supply.

While the transactions occur via Uniswap’s protocol, the Fairmint web application

interfaces with Uniswap to provide a seamless experience directly from the issuer's

website or app.

The Fairmint solution routes orders to whichever market offers the investor the best

price for the desired trade. If the investor seeks to acquire tokens, the application

routes the order to whichever option — minting and/or buying — is in the investor ’s

financial interest. Likewise, for an investor liquidating tokens, the application routes

the order either to sell and/or to redeem the tokens, whichever delivers a better return

for the investor. The application features a user interface that automatically facilitates

all transactions, making the CSO easy to use for the company and its investors.

There are four ways to trade tokens. They can be:

7 Note: Investors and issuers should seek legal advice from counsel when considering features to enable as part of their CSO

Pricing and Trading Tokens

Minted from the reserve

Bought at a market price

Sold at a market price

Redeemed in exchange for cash from the reserve

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Minting tokens — meaning purchasing them directly from the reserve — creates new

tokens, adding to the total number of tokens outstanding. New tokens are minted when

investors want to buy more tokens than there is supply — typically, when optimism

about the company’s future revenues rises. (In some jurisdictions, such as the US,

there may be restrictions, based on income or net worth, that could prevent investors

from minting tokens, but otherwise coins are minted automatically without any possible

interference from the company or any other party.)

The price of minting a token is directly proportional to the number of tokens

outstanding. As this quantity increases, the price for minting each additional token

gradually rises. The price for minting the 1,000th token will be slightly less expensive

than 1,001st, and so on.

This pricing model rewards investors who are early believers in the company and helps

build momentum for the company’s CSO. It also rewards a company that investors

believe in: the more tokens investors purchase the more capital the company receives,

creating a virtuous circle that aligns investor and company interests.

When the reserve mints new tokens, the company receives a portion of the proceeds

(e.g. 90%) to finance its development. The remainder goes to boost the value of the

reserve, thereby benefiting investors. The company establishes these proportions in

advance of launching the CSO. The portion that goes to the reserve — called the

investor contribution — is typically a low number, such as 10%. It can be set to 0% as

well, typically for a very strong and profitable company, where investor risk is minimal;

this would mean that all of the proceeds from token creation would go to the company.

As described below, some token holders may choose to make tokens available as

liquidity on the Uniswap automated market (see Allocating Liquidity). Investors can

then buy (or sell) tokens on this market. You can reasonably expect the

automated-market buy price to range between the redemption price and the minting

price. In jurisdictions with certain investment restrictions, there may be excess buying

demand on the automated market from investors excluded from minting tokens. This

may drive the buy price above the minting price, if investors are optimistic.

Minting Tokens

Buying Tokens

22

You may also sell on the automated market. When selling, it’s important to note that

you can also liquidate tokens by “redeeming” them, described in the next section. As

noted above, the Fairmint technology routes the liquidation to whichever method —

selling or redeeming — provides you with the highest possible return available at the

time of the transaction. In the vast majority of cases, selling will be preferable to

redeeming.

Any investor who holds tokens can “redeem” them at any time (24/7/365) against

cash in the reserve8. You may execute this option when you are eager to liquidate

tokens and cannot do so on the automated market — for example, if investors have

lost confidence in the company and there is high selling pressure and low buying

demand.

In contrast to traditional equity investments, where shares can become worthless,

there is virtually always some value to a token given that it is a fractional claim on a

funded reserve. Unlike the minting price (which is directly proportional to the number

of tokens outstanding), the redemption price changes frequently. It is calculated by

an algorithm, based on the cash in the reserve and the number of outstanding tokens

in circulation. The higher the reserve balance per token, the greater the redemption

price.

The reserve balance is affected by several factors. It increases from the investor

contribution when new tokens are minted. It also increases when the company

deposits revenues in the reserve. The company does this by minting new tokens, with

all of the proceeds going to the reserve; in addition to funding the reserve, this

boosts the token price, as it increases the number of tokens outstanding. It also

increases the number of tokens held by the company, which can choose to hold them,

use them to drive an incentive program for stakeholders, or to reward investors by

“retiring” them.

Retiring tokens is analogous to a listed company buying back shares to increase

shareholder value, however the company can never reactivate a retired token.

Selling Tokens

Redeeming Tokens

8 Under US law, tokens can be redeemed assuming that the one-year lockup period has expired

23

Retiring decreases the number of tokens that have a claim on the reserve, thereby

increasing the redemption price. Retiring tokens does not change the number of tokens

outstanding, so it has no impact on the token minting price, which rises in proportion

to the number of tokens minted.

The reserve decreases only when investors remove funds by redeeming tokens. The

company can never withdraw funds from the reserve, nor can it redeem the tokens it

holds.

If numerous investors want to redeem their tokens, those who redeem sooner will

receive a higher price. The more tokens investors redeem, the lower the redemption

price for each subsequent token. Redeeming tokens also decreases the minting price,

given that redemption removes tokens from circulation.

24

After five years in business, revenues for the (hypothetical) MiniClothes online

marketplace were growing, but competition was intensifying. Better funded challengers

were seeking to lure away MiniClothes’ previously loyal base of customers and sellers.

The company needed cash to market itself and upgrade its website, so its founder,

Jamie, launched a CSO, naming the token MINIC.

Founders's perspective11

Investors's perspective

Illustrative CSO Examples

Alex is a successful (hypothetical) coder. After purchasing an Acme smart desk —

which adjusts electronically to a standing or sitting desk — she has become 30

percent more productive and feels healthier at day’s end. She loves the product, and

constantly tells friends about it, many of whom purchase their own smart desk.

Acme needed financing to scale, so it has launched a CSO. Alex sees that the company

has committed 6% of its revenues to the reserve and that the token, ACME, is trading

at $9.68, which is about 10 times the redemption price of $1.02. Bullish, Alex invests

$1,000 for 95.51 ACME9. Three years later, Alex’s bet is starting to pay off as the

company’s growth has been high. Investors remain bullish, and ACME now trades at

about 7 times the reserve price of $5.05, or $35.30. That means Alex can now sell her

ACME on the automated market for an over threefold return on her investment. Further,

since the reserve price is now $5.05, Alex is confident that nearly half of her

investment is now largely derisked10.

Two years later, Acme’s growth has plateaued, and it decides to close its CSO. Because

the last tokens minted were valued at $41.34, Alex redeems her 95.51 ACME at the

CSO closing for $3,948.38, nearly four times her initial investment, for a whopping

25.71% internal rate of return.

9 As explained in the Pricing and Trading Tokens section, the price of tokens rises gradually with each newly minted token.

10 In other words, Alex could redeem her 95.51 tokens for roughly $5.00 each for about $475, given the current price offered by the reserve. If she were to wait and there was a sudden rush to redeem tokens, the price would decrease.

11 The following are intended to serve only as examples and should not be relied on for investment decisions. Please see our note on forward-looking statements on the cover page of this white paper for additional information.

25

MiniClothes takes a 15% commission on its sales — if it sells $100 in merchandise, it

collects $15 — and Jamie decided to commit 3% of company revenues to the CSO. The

CSO provide much-needed capital and it boosted MiniClothes’ visibility, as the price of

MINIC was posted on the many websites listing and analyzing the prices of globally

available digital currencies. More importantly, MINICs have been instrumental in

aligning MiniClothes’ stakeholders with its success. Not only can they purchase MINICs

and share in its future revenues, but every year Jamie offers sellers who sold over

$10,000 the opportunity to purchase MINICs accumulated by MiniClothes during the

year at a discounted price. Since then, MiniClothes has retained all of its high-sellers

and even attracted many more. In fact, the CSO transformed Jamie’s most loyal users

into fierce ambassadors, boosting the growth of MiniClothes for everyone’s benefit.

26

27

Sources

Ross Bulat, (Dec 20, 2018) Uniswap: Understanding the Decentralised Ethereum Exchange. Available at: https://medium.com/block-journal/uniswap-understanding-the-decentralised-ethereum-exchange-5ee5d7878996

8

Jason M. Thomas, (Nov 16, 2017) Where Have All the Public Companies Gone? Available at: https://www.wsj.com/articles/where-have-all-the-public-companies-gone-1510869125

4

U.S. Securities and Exchange Commission // Accredited Investors, Available at: https://www.sec.gov/fast-answers/answers-accredhtm.html

5

Stripe Docs // Revenue recognition overview, Available at: https://stripe.com/docs/billing/revenue-recognition

6

Thibauld Favre, (Oct 17th 2019)Continuous Organizations, Available at: https://github.com/C-ORG/whitepaper

7

Seth Fiegerman, (May 10, 2019) Here's who will get rich from the Uber IPO. Available at: https://edition.cnn.com/2019/05/10/tech/uber-ipo-who-gets-rich/index.html

3

Jaleesa Bustamante, (December 2019) Airbnb Statistics.Available at: https://ipropertymanagement.com/research/airbnb-statistics

1

Marc Benioff, (Oct. 14, 2019) Marc Benioff: We Need a New Capitalism. Available at: https://www.nytimes.com/2019/10/14/opinion/benioff-salesforce-capitalism.html

2

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About

Fairmint is reimagining going public, with the first platform for Continuous Security

Offerings (CSO). Our mission is to curb inequity by democratizing access to financing

for companies and to growth-oriented opportunities for investors. Fairmint is backed

by world renowned investors and business angels who all share the same desire to

reinvent what it means to go public in the Internet era.

Thibauld previously co-founded, developed and sold Allmyapps, the first App Store for

PC, to IronSource, Israel’s leading software distributor. Thibauld went on to co-initiate

LaPrimaire.org, a technological non-profit aiming at crowdsourcing the best candidate

for the 2017 french presidential election before joining TheFamily as Partner, in charge

of research & education on crypto for entrepreneurs, VCs and public officials. Thibauld

holds a computer science degree from INSA de Lyon and a master's in corporate

finance from EM Lyon Business School.

Fairmint CEO and co-founder, author of the Continuous Organization research paper.

Thibauld Favre

Joris is passionate about applying technology to unexplored niches. He started his

career at IBM Global Business Services before joining Neo-Soft in 2006. As a partner

he scaled this startup to 500 people. Discovering AWS in 2008, he founded Nexteem,

one of Europe’s first cloud computing companies, serving top banks, gaming and

e-commerce ventures. He was CEO of Nexteem from 2009 to late 2017, and sold the

company to Aneo in 2016. Meanwhile, he has been building his own holding fund,

Goodwill Ventures, launched in 2011 to finance innovative projects and invest in

startups and in TheFamily. A 3x finalist in the International Mathematical Olympiad,

Joris holds a Master in International Business from Rennes Business School and he is

an alumnus of the Singularity University in Mountain View, California.

Fairmint COO and co-founder, co-author of the 2020Continuous Securities Offerings white paper

Joris Delanoue

Copyright © 2020 Fairmint Inc. All rights reserved.